Indian bonds poised for rally- Barclays
March 28, 2013, 1:01 pm

The Barclays report expect the RBI to eventually lower the repo rate by another 50 bps by mid-2013 [Getty Images]

A new Barclays report said Indian bonds could be poised for a rally after the recent sell-off.

“We think current bond yields are pricing in excessive cautiousness (10-year yield at policy rate plus 44 basis points), and we see the recent sell-off as an opportunity to buy, targeting 7.40 per cent during H1 of FY14,” the report said.

In bonds, when price of the instrument goes up, yield goes down and vice versa.

The 10-year benchmark yield closed at 7.99 per cent on Tuesday, which had fallen to 7.80 per cent in the last week of February in the hope of a rate cut by the RBI on March 19.

Referring to rise in bond yield after the Reserve Bank of India mid-term policy review, wherein it had cut repo rate by an expected 25 bps, the report said the market interpretation of the RBI statement as hawkish with concerns raised on the resumption of bond supplies in April, are overdone.

“We think both the concerns are overdone. We read the policy statement as balanced, and in an environment of weak growth and softer core inflation, we expect the RBI to eventually lower the repo rate by another 50 bps by mid-2013,” the report said, adding despite resumption of bond issuances in April, there will be enough demand to match supply.

In another major reforms push, the Indian finance minister had announced further liberalisation of Foreign Institutional Investment (FII) norms last week.

The Indian finance minister also said the eurozone crisis has impacted investment around the world and India was no exception.

“The risk to global stability is the eurozone crisis. There is no definitive solution still in sight,” he said adding that this has led to sharp deceleration in exports.

57 founding members, many of them prominent US allies, will sign into creation the China-led Asian Infrastructure Investment Bank on Monday, the first major global financial instrument independent from the Bretton Woods system.

Representatives of the countries will meet in Beijing on Monday to sign an agreement of the bank, the Chinese Foreign Ministry said on Thursday. All the five BRICS countries are also joining the new infrastructure investment bank.

The agreement on the $100 billion AIIB will then have to be ratified by the parliaments of the founding members, Chinese Foreign Ministry spokesman Lu Kang said at a daily press briefing in Beijing.

The AIIB is also the first major multilateral development bank in a generation that provides an avenue for China to strengthen its presence in the world’s fastest-growing region.